I prefer the term “underbanked” to “unbanked”. The millions using something as simple as M-Pesa are not unbanked. They have moved from subsistence to a trading economy and have a basic current account – they can make and receive payments. However they do not have savings or lending accounts – so they are “underbanked”.

It was witnessing the M-Pesa revolution that first drew me to this market.

1.0 The Gameen Foundation proves that default rates can be low when lending to the very poor. Microfinance is born.

2.0 Fast money rushes in and interest rates go to a level that is still better than loan sharks, but not the low rates that billions need in order to escape from poverty. Microfinance may not be a suitable market for the VC to IPO high velocity model.

3.0 The poor lend to each other via a platform. This is what Zidisha is doing. It is peer-to-peer micro lending. Conceptually, the beauty of this model is it “kills two birds with one stone”. The poor get both a saving account (they lend their excess cash) and a lending account (they borrow when they need extra cash).

Look at this in banking terms and you see:

zero credit risk

zero balance sheet exposure

zero asset liability mismatch.

Zidisha has its critics. Nothing radical escapes criticism, so this is not surprising. Zidisha is not for profit, but there is no reason why a for profit model cannot work as long as it is efficient, transparent and low cost. Many large companies have shown that there is money to be made in the “bottom of the pyramid”.

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Published by Bernard Lunn

Bernard Lunn is a serial entrepreneur working at the intersection of media and Fintech. Bernard combines big picture thinking with pragmatic execution. He has lived/worked in America, Europe and Asia and done business in 40 countries. He began in the engine room of Fintech working for companies such as Misys and Temenos. Consult with Bernard on all matters related to sales/marketing as well as strategic issues related to when/how to raise capital/exit and when/how to expand into adjacent markets either organically or via acquisition.
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6 comments

[…] The obvious label for Janalakshmi is Microfinance which got a bad name in 2010 during the Andhra crisis. This post has the details. This Tylenol moment for Microfinance is what got me interested in non-profit models such as Zidisha. […]